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Questions and Answers
What is the primary responsibility of a seller in drop-shipping?
Which of the following is an example of a peer-to-peer business?
What advantage does drop-shipping offer to sellers?
How does the peer-to-peer business model typically generate revenue?
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What defines the freemium business model?
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What is a disadvantage of the drop-shipping model for sellers?
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Which of the following services is considered a freemium model?
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What role does the organizing business play in a peer-to-peer transaction?
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What does a drop-shipping seller lack control over?
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Which of the following is NOT a characteristic of the freemium model?
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Which method is commonly used by peer-to-peer businesses to monetize their services?
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What is primarily eliminated by using a drop-shipping model?
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How does a peer-to-peer business typically ensure transaction safety?
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Which statement best describes the responsibilities of a drop-shipping seller?
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Which of the following is a characteristic of the peer-to-peer business model?
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What distinguishes a freemium model from a traditional sales model?
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What is a significant implication of not holding stock in a drop-shipping model?
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Which of the following statements about peer-to-peer transactions is least accurate?
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What distinguishes the freemium model from purely free services?
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Which factor can negatively affect a seller's profit margin in a drop-shipping arrangement?
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How do peer-to-peer platforms primarily differ from traditional retail businesses?
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Which is a potential downside of the freemium model for service providers?
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Which of these is less likely to be a characteristic of drop-shipping compared to traditional retail?
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What commonality exists between drop-shipping and peer-to-peer businesses?
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Study Notes
Drop Shipping
- Seller accepts customer orders but does not hold stock
- Orders are forwarded to a third party (manufacturer, wholesaler, retailer, or fulfilment house) who ships the goods to the customer
- Seller is responsible for marketing and sales
- Seller eliminates costs of warehousing, inventory management and staff
- Profit is the difference between wholesale and retail price, minus expenses
- Examples: Amazon and Taobao (for China)
Peer-to-Peer (P2P)
- Originally used in the computer industry to describe machines communicating with each other
- In business, P2P means transactions between individuals
- Examples include lending personal possessions, providing goods and services, and sharing information
- Organizing business acts as a facilitator, ensuring safe and efficient transactions
- Can be monetized through transaction fees, advertising, or donations
- Examples include:
- Rideshare apps (Uber, Lyft)
- Freelancing platforms (Fiverr, Freelancer, Upwork, Toptal, Guru)
- Online marketplaces (eBay, Amazon, Etsy, Alibaba/Taobao)
- Accommodation booking (Airbnb, Tripping, HomeToGo)
Freemium
- Combines “free” and “premium”
- Basic product or service is free, but additional features, services, or virtual (online) or physical (offline) goods are paid for
- Used in the software industry since the 1980s
- A subset of this model, used by the video game industry, is called free-to-play
- “Pay-to-win” is a derogatory term that criticizes games which give advantages to players who pay more money
- Used to build a consumer base when the marginal cost of producing extra units is low
- Giving away free products can be effective as long as it doesn’t impact sales of the paid version (cannibalization).
Drop Shipping
- A retail business model where the seller takes orders but doesn't hold inventory.
- Orders are transferred to a manufacturer, wholesaler, retailer, or fulfillment house.
- Eliminates costs of maintaining warehouses, purchasing/storing inventory, and staffing.
- Profits are made from the difference between wholesale and retail prices, minus expenses.
Peer-to-Peer (P2P)
- Originates from computer communication between multiple machines.
- In business, it facilitates transactions between individuals for lending, services, and sharing.
- Platforms act as facilitators, ensuring safety and efficiency, and potentially creating communities.
- Monetization can occur through transaction fees, advertising, or donations.
Freemium
- A pricing strategy offering a basic product or service for free, but charges for additional features or services, expanding functionality.
- Used in the software industry since the 1980s, and called "free-to-play" in video games.
- Often criticized for "pay-to-win" mechanics, which give advantages to paying players over skilled players.
- Aims for frictionless acquisition of new customers, where marginal cost of extra units is low.
- Cannibalization, competition between a company's own products, must be avoided.
Drop Shipping
- Drop shipping is a retail method where the seller takes orders but doesn't hold inventory.
- Orders are transferred to a manufacturer, wholesaler, retailer, or fulfillment house for shipping.
- This simplifies operations by eliminating costs like warehousing, inventory, and staff for those tasks.
- Sellers profit from the difference between wholesale and retail prices after accounting for expenses.
- Examples include Amazon (worldwide) and Taobao (China).
Peer-to-Peer (P2P)
- P2P originated in the computer industry, referring to communication between machines.
- Applied to business, it involves transactions between individuals, facilitated by a platform.
- This platform can serve as a hub for community connections and offer additional services.
- Profit comes from transaction fees, advertising, or donations.
- Examples include:
- Rideshare: Uber, Lyft
- Freelance: Fiverr, Freelancer, Upwork, Toptal, Guru
- Online Marketplaces: eBay, Amazon, Etsy, Alibaba/Taobao
- Accommodation: Airbnb, Tripping, HomeToGo
Freemium
- Freemium combines "free" and "premium" to describe a pricing model.
- Basic product or service is free, but extra features, services, or goods are paid for.
- This model has been used in software since the 1980s, with a subset called "Free-to-play" used in gaming.
- Freemium games are sometimes criticized for being "pay-to-win," where paying users gain advantages over skilled players.
- Its key benefit is frictionless acquisition of new customers due to low marginal cost.
- This model is used to build a consumer base, effectively leveraging low extra production costs.
- It must be implemented carefully to avoid cannibalization, where free offerings compete with paid versions.
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Description
This quiz explores the concepts of drop shipping and peer-to-peer (P2P) transactions in modern business. Learn how sellers operate without holding stock and the mechanics behind P2P transactions among individuals. Test your knowledge with real-world examples and key terms associated with these innovative business models.
